Burma Business Roundup (November 15, 2014)

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By William Boot 15 November 2014

Continued Burma Sanctions ‘Limit What Obama Can Achieve’

President Barack Obama’s visit to Burma will not lead to any significant breakthroughs because of continuing tough US terms for American firms seeking to invest in the country, a business analysis said.

Obama’s weakened position at home after the US’s mid-term elections would also inhibit his influence in Burma, global business risk analysts Maplecroft told The Irrawaddy.

“The limited sanctions maintained by the US Treasury create a more restrictive environment for US companies to operate in compared to companies from Europe and Asia,” Maplecroft senior Asia analyst Ryan Aherin said.

“The sanctions on assets tied to individuals deemed responsible for human rights violations make many US companies wary about investing,” he said.

“The decision to add Aung Thaung to the [US] Treasury blacklist makes Myanmar even less attractive to US companies who are already wary of the business environment in Myanmar. Most business tycoons in Myanmar have some ties to the former military regime and could be a potential target of individual sanctions in the future,” Aherin told The Irrawaddy.

Aung Thaung and his family control several major Burmese firms, notably IGE Company Limited, which is engaged in a wide range of trading and construction, and he is a lawmaker representing the ruling Union Solidarity and Development Party.

Although Burma has the potential to become a major destination for cheap manufacturing, the high cost of property in Rangoon and lack of developed infrastructure elsewhere in the country are dragging down investment. On the other hand, the partial lifting of US sanctions is regarded as one of the few major accomplishments for Obama’s government in Southeast Asia, said Maplecroft’s Aherin.

Burma Joins China-led Regional Bank Challenging Western Loaners

The Burma government is one of the founding signatories of the new China-dominated Asian Infrastructure Investment Bank (AIIB), which seeks to challenge the influence of the World Bank and the Asian Development Bank.

The AIIB’s start-up capital has been set at US$100 billion and half of this will be provided by China.

“Chinese diplomats have been busy promoting [the AIIB] to help build ports, roads, power projects and other desperately needed infrastructure across the region,” said Reuters.

Burma is one of 21 founding members of the AIIB, which also include India. But the United States’ government put pressure on Australia, South Korea and Indonesia not to join the founding members.

Among other things, the AIIB is expected to fund controversial coal-fuelled power plants in the region, something which the Western-dominated financial institutions rarely do for environmental reasons and pressure from Washington, said the energy weekly Asia Power Monitor.

But the loans will “surely come with strings attached, notably the involvement of major Chinese state-owned businesses, such as the China Machinery Engineering Corporation in development contracts,” the Monitor said.

“It’s a price which … the ten economies of the Association of Southeast Asian Nations (ASEAN), seems highly likely to accept given the alternatives.”

Big Interest Among Asian Firms to Invest in Burma: Survey

A foreign bank granted an operating licence in Burma said a survey among more than 1,000 Asian firms indicated that one in four planning cross-border business investment in the region is looking at prospects in Burma.

The survey was carried out by Singapore’s United Overseas Bank (UOB), one of nine international banks awarded a bank licence in Burma in October.

The statistic was disclosed by UOB chief executive Wee Ee Cheong in an interview with the Bangkok Post, but no details on the type of companies involved were given.

“Currently, a large proportion of foreign direct investment going into Myanmar is from Southeast Asia,” Wee said.

The survey was conducted in the first quarter of 2014 and involved the “key financial decision makers in 1,024 companies in China, Hong Kong, Indonesia, Malaysia, Singapore and Thailand across a number of industries,” Japan’s Nikkei business news agency said.

China was the most popular investment destination named, garnering 66 percent of the companies questioned. The lowest was Thailand, rating only 16 percent, said Nikkei.

Burma Eyes Overtaking Thailand as Regional Air Travel Hub

The long-term goal of Burma’s holiday business is to overtake neighbor Thailand as a major hub, the industry newspaper TTR Weekly said.

“[The] government intends to turn the country into a major air travel hub for Southeast Asia competing head-on with Bangkok for status as the preferred gateway for tourists visiting Asean,” the paper said.

“The [transport] ministry will implement four strategic plans to achieve this goal: Pursuing liberalisation of economic regulation; establishing new air links to destinations worldwide; promoting national airlines and improving infrastructures,” it said.

The total number of visitors to Burma this year is forecast to be 3 million and with a target of 5 million by the end of 2015, the ministry of hotels and tourism has said. But that’s a long way behind the 26.7 million passing through Thailand in 2013, according to Tourism Authority of Thailand figures.

The number of foreign airlines flying into Burma’s ports is now more than 30, but some major Western airlines still use Bangkok as a transfer stage for Rangoon.

Burmese Beans make Business Breakthrough in Europe

Burma’s bean growers have made a breakthrough by finding markets in the European Union, the country’s Pulses, Beans and Sesame Seeds Merchants Association said.

The market, in as yet unnamed countries of the EU, is for the variety of lentil known in Burma as matpe, said association deputy chairman Sai Ba Nyan.

“We will currently focus on the matpe variety and primarily export those that meet the quality standards of Europe. We have gained a new market,” he told Myanmar Business Today.

Burma produces more than 1.5 million tons of beans and pulses varieties per year, including chickpeas, green mung beans and matpe.

Until now most of the crops are exported to India, followed by South Korea, China and Japan. But shipping to the EU “will fetch a good price provided that the quality is good,” Myanmar Business Today quoted a trader saying.